Differences Between Merger and Acquisition

Differences Between Merger and Acquisition

When people hear the words merger and acquisition, many think that the two words have the same meaning. The fact is that these words have different meanings and processes. To make sure that you don’t get it wrong, it is better to know what makes these two words different.

The terms merger and acquisition are both used to describe events when two or more companies merge together. However, the mechanism of merger and the impact on the merged company is very different compared to that of acquisition. Now to help you understand, here are some simple explanations of each term from several different aspects:

Definition of Merger and Acquisition

The terms merger and acquisition have different meanings. Merger is an event when two or more companies merge into one new company. On the other hand, acquisition is an event when a company buys another company by buying the shares of the target company.

Differences Between Merger and Acquisition (2)

Existence and Presence of Company 

The next difference between merger and acquisition is the company’s presence. In merger, two or more companies merge as one and usually have a new name. Therefore, the existence of the old companies will disappear.

As for acquisitions, the existence of the two companies will not disappear. So, when company A acquires company B, company B will belong to company A. Company B can still run as usual like nothing happens. However, Company A may change the name of company B, but the existence of company B will still remain.

Purpose of Merger and Acquisition

The last thing that distinguishes mergers from acquisitions is the purpose of their implementation. There are many reasons why mergers take place. But in general, mergers are carried out to save a company from bankruptcy and to increase its profit. So, when two or more companies merge into one, they hope that the new company can reduce operating costs and become stronger.

Similar to mergers, acquisitions are also carried out to reduce the company’s production and operating cost. Usually, the company that is acquired by  larger company is the company that produces or supplies one of the raw materials. That way, the acquiring company can produce products with lower production costs and larger capacities.

Differences Between Merger and Acquisition (3)

Merger and Acquisition Process

There are at least 5 stages that companies must fulfill before they can merge together. First, both companies must meet the incorporation requirements. This process must be carried out by taking into account the interests of each company and the related parties such as ethnic minorities and community. In addition, the merger carried out must prevent the occurrence of a monopoly that can harm other parties, especially the community.

The next stage is to develop a merger plan in which some information needs to be made available such as the name and position of the companies that will be merged into one, the reason for the merger, and the financial statements of each company. If the merger plan has been approved by each company’s board of commissioners, the plan must be  submitted to the GMS of each company.

It should be noted that the GMS can only be held if there are at least 3/4 of the shareholders present  or represented at the meeting. Furthermore, the decision will only be valid if 3/4 of the shareholder present or represented cast their votes. If approved by the GMS, the plan must be stated into the deed of merger. Finally, the board of directors of the new company must announce the results no later than 30 days after obtaining approval from the minister.

Overall, the acquisition process is not much different from the merger process. The difference is that acquisition does not eliminate the existence of the companies involved, but only changes the power holder. So, with an acquisition, the company that has been acquired will be controlled by the company that acquires it. Even in the legal entity aspect, the status of the two companies remains different. The only thing that changes is the shareholders of the acquired company.

Get Help from ADCO Law

For companies that are planning to conduct acquisitions or mergers, do not hesitate to ask for help from us, ADCO Law. We are a law firm with many years of experience in assisting companies in the merger and acquisition process. With the experience we have, we will help you with the M&A process until the very end!

So, that’s a glimpse of the difference between mergers and acquisitions that you need to know. To ensure the process runs smoothly, make sure to use our services at ADCO Law.

ADCO Law earns the trust to represent clients from multinational companies to emerging entities across a wide range of industries to achieve their business objectives in Indonesia. ADCO Law as a Law Firm Jakarta assists the clients to structure, organize and implement their business ventures and investments, including structuring, financing, and securing investments as well as establishing new foreign companies in Indonesia. Should you have more queries regarding this matter, please do not hesitate to contact us